Welcome to our Blog

Our goal is to educate you on all the exciting facets of Commercial Finance. With over 25 years of experience we have a lot to teach you over the next couple of months. If you want to join our growing company we are always looking for new team members.

Sunday, June 1, 2008

Daily Observations - Down Payments

Just because a lender states they offer a 75% LTV or loan to value does not mean that you will get a 75% loan to value loan.

The reason is quite simple. All lenders look not only at the LTV for a project but more importantly look to the cash value that is generated from the project. If there is not enough cash flow to support the required debt service coverage ratio that the lender needs for approval, they will lower the loan amount they are willing to lend therefore also lowering the loan to value that they are offering you.

Remember loan components cannot be viewed in a vacuum, but must be looked at together. CAP rates dictate purchase price and Return on Investment determine if the project makes economic sense when you determine how much of a down payment you REALLY have to come up with.

No comments: